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Insider UK
Business
Peter A Walker

Confidence falls in Scotland as cost-of-doing-business rises

Business confidence in Scotland has fallen and now stands at one of the lowest rates in the country, as companies face a cost of doing business crisis.

The Institute of Chartered Accountants in England and Wales (ICAEW) Business Confidence Monitor for Scotland found sentiment to be in negative territory, with only Wales recording a lower reading.

Scottish companies said that regulatory requirements and tax, labour market and transport issues were taking their toll. Input price inflation has also hit the country’s businesses, leading to a rise in selling costs and salaries.

With firms facing a crisis from the cost of doing business, amid soaring energy prices and high inflation, ICAEW said households and companies would need support in the short-term to get through the next few months.

Two in five businesses said they were being increasingly challenged by regulatory requirements, possibly because of the importance of financial services within the Scottish economy.

More companies said they were being challenged by the tax burden than at any time since the survey started.

Meanwhile, the number of companies that said transport problems were a growing challenge fell from their high in the fourth quarter of 2021, but remained much higher than the historical average.

There continued to be challenges from the labour market, as the proportions of companies with problems from the availability of both management and non-management skills were double the historical averages, reflecting both the demand for labour and the departure of people from the workforce.

Businesses were responding to these challenges by increasing salaries at the fastest rate for 14 years, with a similar increase forecast.

Input price inflation rose by 4.6% year-on-year, the sharpest increase seen since late 2008. The same rise is forecast in the year to the third quarter of 2023.

However, domestic sales grew by 6.4% year-on-year, in spite of the plunge in confidence, with a further 7.1% rise expected – the strongest outlook of any part of the UK.

Export growth was among the weakest of any part of the UK and this trend is expected to continue.

ICAEW's director for Scotland David Bond said: “After a strong recovery from the pandemic, Scottish business confidence is now in negative territory - our companies are struggling with regulatory requirements, tax and labour market problems and weakening exports, and face a crisis from the cost of doing business.

“With inflation running at levels not seen for 40 years, ministers must provide targeted support for struggling businesses and households to keep the lights on this winter.”

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